Is the Law Workable and Fair?

The Court of Appeals decision in The Great Peace made law on common mistake coherent with frustration. Contracts which turn out impossible to perform are construed as void, but the parties always have the opportunity to contract for the risk to be apportioned differently. The law is workable and fair. Discuss.

The Court of Appeals decision in The Great Peace made law on common mistake coherent with frustration. Contracts which turn out impossible to perform are construed as void, but the parties always have the opportunity to contract for the risk to be apportioned differently. The law is workable and fair. Where the common misapprehension is present at the date of entry into the contract, the contract may be considered as void on the ground of common mistake. Whereas, if events have occurred after the making of the contract which render performance of the contract impossible, illegal or something radically or fundamentally different from that which was in the contemplation of the parties at the time at which they entered into the contract, then the contract maybe considered as void on the basis of frustration. The link between common mistake and frustration is apparent from the judgment of the Court of Appeal in Great Peace1. In The Great Peace, the defendants chartered The Great Peace believing that the vessel was approximately 35 miles away from The Cape Providence (the vessel that suffered structural damage and needed assistance for evacuation). However, later the defendants learnt that The Great Peace was actually 410 miles away from The Cape Providence. The Defendants then agreed a contract with a nearer vessel, namely The Nordfarer and cancelled the contract with the claimant. That contract expressly entitled the defendants to cancel the contract subject to paying a cancellation fee of five days hire ($82,500). The defendants refused to pay that fee and the claimant brought a contractual action to recover it. The defendants argued that the contract was void at common law, or voidable in equity, for common mistake. In dismissing the defendants appeal from the decision of Toulson J, the Court of Appeal held that the common mistake did not fall within the narrow doctrine recognised at common law so as to render the contract void; and
1

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace [2002] EWCA Civ 1407, [2003] QB 679, Court of Appeal.

there is no doctrine of equitable common mistake. In The Great Peace, Lord Atkins expressively stated that at the time of Bell v Lever Bros Ltd2 the law of frustration and common mistake had advanced hand in hand on the foundation of common principle. It is said that the in cases of common mistake and frustration the courts are dealing with the same issue; namely the allocation of risk of an unforeseen event. As in the case of Amalgamated Investment and Property Co Ltd v John Walker & Sons Ltd 3 which demonstrates that is a strong relationship between common mistake and frustration. The point of issue in this case was who would bear the risk of the listing of the building, whether the case is treated as one of common mistake or frustration, the issue is exactly the same. Both common mistake and frustration operate within very narrow confines and emphasis the need to hold men to their bargain. The link between common mistake and Frustration is also apparent from the judgment of the Court of Appeal in Great Peace. The court stated consideration of the development of the law of frustration assists with the analysis of the law of common mistake.4 The judges deduced that the doctrine of common mistake is coherent with the doctrine of frustration based on the facts that an implied term is as unrealistic when considering common mistake as when considering frustration, secondly, in considering whether performance of that contract is impossible, it is necessary to identify what is that the parties agreed would be performed.5 The third is that, just as the doctrine of frustration only applies if the contract contains no provisions that covers the situation, the same should be true be of common mistake. In both groups of cases the courts are faced with an issue of construction; did the contract make provisions for the events which have happened? The provisions are the force majeure clause and the hardship clause. Contracts today often make provisions for the impact of unexpected events upon contractual performance. If the force majeure clause was included in the contract, the contract is not voidable, clearly seen in the case of Channel Island Ferries Ltd v Sealink UK Ltd.6 The hardship clause will lay down a procedure to be adopted by the parties in the event of such hardship occurring. Generally the clause will impose an obligation on both parties to use
2 3

Bell v Lever Bros Ltd [1932] AC 161 Investment and Property Co Ltd v John Walker & Sons Ltd [1977] 1 WLR 164 4 Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace [2002] EWCA Civ 1407, [2003] QB 679, Court of Appeal. 5 Krell v Henry [1903] 2 KB 740 6 Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1

endeavours to renegotiate the contract in good faith in an attempt to alleviate the hardship which has arisen. A further type of clause which is often found in commercial contract is intervener clause. In the intervener clause it gives to a third party such as an arbitrator (the intervener) the authority to resolve the dispute which has arisen between the parties. Hence the law is workable based on the facts that these clauses can be used as an advantage based on; the provision of a degree of uncertainty (it is often difficult to know whether a contract has been frustrated or not); frustration operates within very narrow limits; the third advantage is that the parties can make provision for the consequence of the occurrence of a force majeure or hardship event. Hence it can be said that the law is workable as it allows clauses such as force majeure and hardship to not terminate a contract based on frustration and common mistake. The parties always have the opportunity to contract for the risk to be apportioned differently makes the law seems fair based on the grounds that a contract is not frustrated where the parties have made express provisions for the occurrence of the alleged frustrating event in their contract.7 A frustrating event is a supervening, unforeseen event where the contract is frustrated on the ground that further performance of the contract is against the law.8 A party cannot invoke the doctrine of frustration where the alleged frustrating event is brought upon through his own conduct or the conduct of those for whom he is responsible; self induced frustration.910 The sums paid prior to the frustrating event are recoverable, sums payable prior to the time of discharge cease to be payable and the payee maybe entitled to set off against the sum so paid expenses which has been incurred before the time of discharge in, or for the purpose of the performance of the contract as in the Law Reform Act 1943.11 If the party to the contract has conferred upon the other party a valuable benefit (other than a payment of money which is governed by 1943 Act 12 before the time of discharge, that person shall be entitled to recover from the other party a just sum which shall not exceed the value of the benefit which he has conferred upon the other Party.13 Hence based on these facts it can be said that the law is fair.

7 8

Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154 Ertel Bieber and Co v Rio Tinto Co Ltd [1918] AC 260 9 Maritime National Fish Ltd v Ocean Trawlers Ltd [1953] AC 524 10 J Lauritzen AS v Wijsmuller BV [1990] 1 11 Law Reform (Frustrated Contracts) Act 1943, s.1 (2) 12 Law Reform (Frustrated Contracts) Act 1943, s.1 (2) 13 Law Reform (Frustrated Contracts) Act 1943, s.1 (3)

In both the doctrine of frustration and the doctrine of common mistake unjust enrichment should be reversed and, if this is thought to be insufficient to achieve a satisfactory result in all cases, consideration should be given to the principles upon which any loss caused by common mistake or the frustrating event should be apportioned between the parties, making the law on common mistake coherent with frustration and demonstrating that the law is workable and fair.